Paragons stricter BTL affordability tests

BTL lender Paragon have updated their affordability calculations to accommodate the increased financial burden of the coming changes to mortgage interest rate tax relief for landlords paying the higher tax rate.

Paragon's Interest Cover Ratio (ICR) for any higher rate tax payers is to rise from 125% to 140% when assessing an applicants affordability.

Those landlords not in the higher tax rate, or those using limited companies will see no change, with ICR staying at 125%.

The Reference Interest Rate used for their affordability calculation is also set to change; rising from 4% to either 2% above product rate or 5.5%, whichever of the two figures is higher. ( this will not effect some long term fixed rates )

John Heron, Director of Mortgages, said, 

“Government policy towards the Private Rented Sector will increase costs for landlords and it is clear that this will need to be reflected in lender affordability assessments.

The PRA’s supervisory statement released in September this year is helpful in ensuring that lenders approach this in a consistent fashion.

The changes that we’re announcing today are designed to tailor affordability to each landlord’s individual circumstances, whilst keeping the application process straightforward for brokers and their customers.”


PH - Leeds BS have just followed suit; expect more lenders to do the same.

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